Do you get those envelopes in the mail offering you a credit card? Millions of Americans do every day, and we have one company to thank: Capital One. Capital One is the 8th-largest bank holding company in the country, with nearly 1,000 branches and 2,000 ATMs. In the 1990s, it started mass-marketing credit cards through the mail and hasn’t looked back – it’s now the 4th largest customer of the United States Postal Service and the 2nd largest customer of the Canadian post office.
It’s also the largest filer of lawsuits against its borrowers – by a lot.
Credit Card Lawsuits
When you fall behind on your credit card payments, your credit card company will start sending you letters and calling you to ask you to pay. If that doesn’t work, they have 2 options: sell your account to a collection agency or sue you for collection. A collection agency will also try to call or send letters to collect and may eventually decide to sue. In other words, you’re at risk for a lawsuit whenever you fall behind on your payments. Once they’ve sued and gotten a judgment against you, they’ll be able to garnish your wages or levy your bank accounts for payment.
Wage garnishment can be a very serious burden – even those earning minimum wage can see a significant chunk of their earnings pulled out to repay the debt. Wage garnishment tends to hit low-income households the hardest – about 5% of those earning less than $40,000 per year had their wages garnished in 2013, as opposed to 3% of the population as a whole. That’s a double-whammy; those households are more likely to end up behind on their payments in the first place and are least likely to be able to afford to lose a chunk of their wages to garnishment.
However, there are plenty of accounts that never end up in court. If your outstanding balance is small enough, the cost (both in time and in money) of taking you to court is too high to be worth the credit card company’s time. They’ll report it to the credit bureaus, so your score will take a hit, but they often won’t actually file a lawsuit against you.
What’s Different About Capital One?
Capital One’s portfolio of credit card debt is different from that of many other lenders. It has a high concentration of “subprime” accounts, or accounts held by borrowers with low credit scores. Those credit cards carry a very high rate of interest because subprime borrowers are more likely to default. That means Capital One provides credit to many who wouldn’t be able to get it otherwise, but it also means that more of its accounts do end up defaulting.
Credit card companies make their money when you don’t pay your card off in full every month so you have to pay interest. If you default and don’t pay anything at all, they’re losing money. If a large percentage of the credit card company’s portfolio defaults, they may end up losing serious money – that’s similar to what happened during the 2008 housing crisis. That’s why credit card companies sue you for collection. They’re trying to keep making their money, or at least limit their losses.
Capital One Sues More Borrowers Than Any Other Lender
So, any credit card company may sue a borrower for collection when that borrower defaults. Because of its large portfolio of subprime loans, Capital One has a large number of defaults and a large number of potential lawsuits – and it’s filing them.
According to a study of the court records of 11 states by ProPublica, Capital One files far more lawsuits than any other credit card company, despite having only the fourth-largest portfolio of credit card debt. In 2014 in Indiana, for example, Capital One filed more than 3,000 collection lawsuits – more than every other major credit card company combined. It filed almost half of the collection suits in Nevada and Florida in 2014.
Not only is Capital One filing more claims than any other bank, it’s also filing smaller claims. The average amount of one of their claims in New Jersey, for example, is about $1,500. In contrast, the average Bank of America claim is more than $4,500. Many of Capital One’s suits are for amounts as small as $1,000.
Black borrowers are particularly at risk – Capital One gets judgments against borrowers from predominantly black communities twice as often as against borrowers from predominantly white communities.
What Does This Mean For You?
First, it means you need to check your wallet. Do you have a Capital One credit card? Is it in default? If so, you’re at risk for a collection lawsuit. The good news is that you have options for dealing with it.
Reach out to Capital One and ask them to work with you on your account. Being pro-actice in this way is an important step, and a much better approach than ignoring the problem and hoping it goes away. It’s easier for them to work with you and help you pay voluntarily than it is to sue, so they may be willing to change your interest rate or let you settle your debt.
If you are sued for debt collection, either by Capital One or by a debt collection agency, you are entitled to verfication of the debt under the Fair Debt Collection Practices Act. Make a written request for verification of the debt, ideally by certified mail, so that details of the debt you owe are provided to you. This act is intended to prevent debt collectors from using coercive or unfair practices against you when collecting debts, and will give you greater peace of mind about what you actually owe and why.
If you can’t reach a solution by working with Capital One, it’s time to sit down and take a good look at all of your finances. Evaluate your income and your debt and see if you can work repayment into your budget. If not, you may want to consider filing a bankruptcy to wipe out your unsecured debts (credit card and medical debt, among others). Bankruptcy will hurt your credit score, but so will a collection lawsuit and the subsequent wage garnishment. If you wait for Capital One to sue, the ball is in their court and you may end up losing up to a quarter of your paycheck. If you’re proactive, you have control over how you want to manage your debts and your income – and you may even be able to wipe most of those debts out.
If you’re struggling with debt, contact us today for a free consultation to learn about your options for wiping your financial slate clean.
Barry Edward Borowitz is the founding partner of Borowitz & Clark, LLP, a leading bankruptcy law firm that represents clients petitioning for bankruptcy protection under Chapter 7 and Chapter 13 of the bankruptcy code. Mr. Borowitz has been practicing bankruptcy law exclusively for more than 15 years. View his full profile here.